Seven Things Worth Thinking About

Emotions run hot when people debate the use of cloud computing for human resources (HR) management – particularly in Europe, and most particularly in Germany. The general opinion in Europe is that employee data is confidential information and simply doesn’t belong in the hands of others, not even in the hands of a reliable service provider. This point was driven home once again by the recent PRISM espionage affair, which clearly demonstrated just how fundamentally different European and American attitudes are when it comes to protecting personal data.

Yet there are also some good reasons, from a European point of view, for conducting human capital management (HCM) in the cloud.

This story is part of our special focus on human resource management. All the articles related to this topic can be found here.

1. Data protection is a controversial issue outside the United States.

Europeans are skeptical when it comes to using HR applications in the cloud. The “Talent Management Software – Trend Report 2013” published by the consulting firm Softselect confirms that Germans are the most wary of all, citing poor data security as the main reason for their reluctance to run sensitive personnel processes in the cloud. This is despite the fact that most data centers have undergone strict certification procedures and thus meet higher security standards than most company-owned software. Data security, though, is a number one priority in Germany. If a company cannot prove 100 percent that sensitive employee data is handled properly, it will find itself in some rather serious trouble, says Karsten Sontow, an ERP expert at the consulting and market analyst firm Trovarit. In addition, local employee protection laws and data privacy regulations require providers of HR software to offer their customers local data centers. Thanks to its acquisition of the American HR specialist SuccessFactors, SAP has now found the ideal answer for its European and German customers: Enterprises like the Munich-based Siemens AG, Switzerland’s insurance giant Basler Versicherungen, and the online travel company Expedia now use SAP’s HR software in the cloud.

Payroll accounting outsourced to tax consultants

2. Tax consultants have been retrieving personal data from the cloud for some time now.

Yet we still see contradictory behavior: The IT service provider DATEV, which specializes in financial services, has for years been using software that it provides to its customers – tax consultants – in the cloud. Many companies outsource their payroll accounting to tax consultants. “But DATEV does not do business exclusively in the cloud,” Sontow notes.

A recent survey of large enterprises by Booz & Company consultants found that aside from the security aspect, a lot of people are afraid to give up their flexibility and independence, and instead willingly accept long implementation periods, usually from one to three years, for on-premise systems. Cloud-based solutions, on the other hand, are highly standardized, leaving little room for customization, and are suitable for smaller and mid-size enterprises. Thus, they promise a quicker integration into your company processes – on average between four and six months, depending on the application.

4. System complexity is low in the cloud.

As a result, the solution isn’t that complex either. And that is precisely what makes HR in the cloud so interesting for the ERP expert Sontow. “Only a quarter of all companies use an integrated ERP solution to perform their central HR tasks,” he reveals. What’s more, nearly one in two uses customized HR software at the company. Regulatory requirements in different countries around the world mean that core processes in HR software are highly structured. “As a result, HR is one of the best-suited applications for the cloud,” Sontow says: HR functions and business processes are easily mapped in the cloud, plus the entire system stays relatively uncomplicated, which enhances its scalability. That, Sontow argues, is what makes HR in the cloud so very interesting, especially for multinational corporations that have to comply with the local regulations in their various countries of operation and adapt their systems quickly and efficiently to changing legal requirements.

Discussion about the cost of HR in the cloud

5. Cloud computing costs more in the long term than on-premise computing.

A major sticking point brought up again and again by both opponents and proponents of HR in the cloud are the costs: The Softselect survey, for example, found that 19 percent fear higher operating costs, while 68 percent anticipate lower operating costs. And to a certain degree, both factions are right. According to Booz & Company’s “ERP in the Cloud” study, the initial one-time costs for traditional on-premise systems are more than eight times higher than for cloud-based systems. Over time, however, you benefit from owning the software licenses for your on-premise systems, and month for month, operating costs for cloud computing are more than 20 percent higher than for on-premise. These are only general observations, however, and should be applied with caution to customized HR systems, because adaptations to regional and national law could in fact diminish or marginalize this 20 percent difference.

The acquisition of SuccessFactors was a huge boost for SAP’s HR business. Human capital management à la SuccessFactors supports new recruiting methods and promotes staff development though things like talent and performance management. By contrast, the cloud ERP solution SAP Business ByDesign bundles all HR processes into one module. “The acquisition of SuccessFactors has shown that SAP is evolving from a pure ERP provider to one that offers a full portfolio of ERP-related services,” says Sontow. “SAP’s acquisitions are aimed at expanding the company’s range of ERP offerings in order to generate more business with existing SAP customers. HR processes are an ideal choice in this case, since HR is fundamentally relevant for nearly all of SAP’s customers. And when you consider the fact that HR is much better suited for the cloud than most other application areas, the SuccessFactors acquisition makes twice as much sense.”

7. The Facebook generation is more laid back.

Sontow is convinced the trend will continue toward the cloud. “The Facebook generation is not really that concerned about data security,” the consultant says, “so it’ll be much more receptive to cloud computing in Germany.”

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